Understanding the 2022 Medicare Part D Donut Hole Coverage Gap

If you have a Medicare Part D plan for your prescription drugs, you may get a surprise at the pharmacist: The drug you were taking that has been covered all year suddenly isn't covered anymore. Your pharmacist will charge you more for the drug.

If this happens to you, you've probably run into the Medicare Part D coverage gap, often called the "donut hole."

Here's how it works:

Once you and your plan have spent a certain dollar amount within a calendar year, coverage ceases. You'll have to spend more for drugs out of pocket, or find some other resources, until you hit a catastrophic coverage threshold. At that point, Medicare Part D will cover your prescription drugs again, as it did before.

As of 2022, you'll run into the donut hole once you've spent $4,430 in prescription drug costs. Once you hit that threshold, your coverage decreases, and you will need to pay 25% of the cost of brand-name drugs and also 25% of the cost of generics. You'll continue to be charged this amount until you reach the catastrophic coverage threshold of $7,050 on prescription drugs during the calendar year. You then exit the donut hole and move to the catastrophic coverage phase.

You’ll probably Exit the Donut Hole (Coverage Gap) Faster than You Think

When you are in the donut hole and paying 25% of covered drugs, your spending counts toward exiting the gap. But also the drug manufacturer’s discount of 70% also counts and will help you exit the gap faster. (Notice that 25% + 70% does not equal 100%) There are two things that do not count towards closing the gap.

1.      The amount that your drug plan pays toward the cost of the drug, which is 5% in the gap

2.      The amount that the drug plan pays toward the pharmacy’s dispensing fee, which is 75% of the fee in 2021

Keep in mind that there are other things that don’t count toward reaching the catastrophic limit, which are your plan premium and also what you spend on any drugs that aren’t covered by your Part D plan.

Once you have emerged from the donut hole and you are in the catastrophic coverage phase, you will be charged not more than 5% of your prescription drug costs from that point.

If you have a Medicare Advantage plan with Part D benefits, you are likely to experience the same donut hole problem. Just because it is not a stand alone Part D plan makes little difference, but check your plan specifics or look for another plan during the Annual Election Period. The best way to avoid the donut hole is to try to manage your drug expenses. One way to pick a plan that has the drugs that you use in its formulary. Remember that everything resets January 1.

If you have low income, you may qualify for “Extra Help”. Check with the Social Security Administration. Folks receiving Extra Help can avoid the donut hole entirely.

 How to Reduce Drug Costs

• Switch to generics. Speak with your doctor or pharmacist and ask about any generics that may be available. Many brand-name drugs have generic equivalents available at a fraction of the cost.
• Switch to mail order pharmacies. Mail order companies can often provide drugs at steep discounts compared to bricks-and-mortar stores.
• Shop around.  Some plans provide better coverage during the coverage gap period. You may need to pay a higher premium, but it may be worth it if you spend more than $4,130 on prescription drugs. Before switching, check to ensure the drugs you are taking are in the plan formulary, and therefore covered.
• Enroll in a State Pharmaceutical Assistance Program. Most states maintain and fund their own program to help lower-income or disabled Medicare beneficiaries with drug costs. Each state's program varies, but you may qualify for assistance with premiums, deductibles or copays.
• Apply for the Extra Help program. The Extra Help program is a Medicare and Medicaid-run program that helps those with limited financial resources cover the cost of prescription drugs. Most people who qualify will receive the following benefits:

1. No premiums
2. No deductibles (except when receiving a partial subsidy)
3. Cost of not more than $8.35 for each drug covered under their plan. 

Note: Never stop paying Medicare Part D premiums. If you cease doing so, you could get disenrolled from the program, and be subject to a permanent late-enrollment penalty when you try to sign up again. The penalty is permanent and 1% for every month you were not enrolled and did not have “credible” coverage (equal or better coverage such as through an employer). 

Finding Assistance

It is best to check for your state’s resources. An independent insurance agent can also help or point you in the right direction.